The financial revolution is here. Here, we take a deep dive with one of the world’s top FinTech venture capitalists, Spiros Margaris, Founder of Margaris Ventures, into how AI and related technologies are transforming a key industry. Spiros, senior advisor and investor in several companies in the fintech, insurtech, cybersecurity, healthcare and AI sectors, including two FinTech start-ups with valuations of over $1 billion dollars.
Q: What problems, gaps or inequities in financial systems are potential areas for transformation?
Margaris: The financial technology industry—FinTech—seems to stem from the need to provide a democratized financial system, at least the FinTech companies I’m interested in. The long-term impact of these companies will be the true legacy of our industry. By democratizing the financial system, I mean an industry that provides the unbanked or underbanked – people with disabilities, minorities, or marginalized groups – with access to basic and equitable financial services. Many financial services that most of us take for granted are inaccessible to low-income and rural populations due to a lack of physical infrastructure, internet, smartphones and access to computers.
Moreover, financial products are often too expensive for less privileged people and lack transparency and easily understood terms. This makes it difficult to understand the true costs and risks of these products. Technology such as artificial intelligence is the big enabler, helping the financial sector transform faster and in a more differentiated and democratized way that overcomes or mitigates these shortcomings. Thus, AI can reduce the disparities in access to financial services between the rich and the poor.
Q: What type of work is being done, and what success are we seeing?
Margaris: AI is already widely used in the financial sector and is spreading to other sectors like banking, trading and lending, such as in more nuanced and precise credit scoring systems deployed via AI and big data. AI enables businesses to make more informed decisions and improve fraud detection and risk management systems, as well as deliver more personalized and tailored offers to individual customers.
AI chatbots are also being used to provide customers with more efficient and personalized customer service. Automation enabled by AI can streamline processes and improve efficiency in financial services, further reducing costs and improving customer experience. Additionally, AI and big data can help identify and combat systemic financial market issues, such as money laundering and terrorist financing, which could potentially undermine the stability of financial markets as we know them. . Through opportunities for constant and rapid improvement, AI succeeds in reducing the cost of financial services and accessibility for those who have been left behind or had limited access to traditional banking options.
Q: Are banks and financial institutions ready or are new tech-savvy players gaining traction?
Margaris: While financial institutions and fintech companies are already deploying AI to improve their services and stay competitive, the more tech-savvy players in the industry are probably better positioned to take full advantage of the vast possibilities and become more efficient. As we know, the competition does not stop at the traditional financial players, but is enriched by others, such as the technology giants, who also want a piece of the cake.
Tech giants such as Amazon, Apple, and Google have the technical expertise, vast resources, and customer base to gain traction in the financial industry. In a tech-driven world, the problem for the financial industry is that tech companies have a business DNA built on deploying cutting-edge technologies and driving innovation to achieve their growth strategies. That said, even though the financial industry is technologically disadvantaged compared to the tech giants, what speaks for them is the inherent and deep customer trust in established banks and financial institutions.
Nevertheless, the DNA of the financial industry must rapidly enrich itself with cutting-edge technologies and innovations to remain competitive in the future. We have to remember that tech giants will never want to be banks; they want to serve their customers and make their solutions more effective. For financial institutions, tech giants have the potential to take a big slice of the business pie, often quite a tasty and profitable slice.
The future competitive landscape will be defined by how much each player wants to invest in technology and drive innovation to deliver better deals to customers. Fintech companies have understood this much better than most banks, but increasingly everyone understands that pushing technological progress is the only game in town, at least for those who want to stay at it.
Q: What challenges await the deployment of AI to democratize the financial system?
Margaris: As great as current and potential AI solutions may seem, there are challenges that need to be addressed to ensure continued success. AI models require vast data – both accurate and up-to-date – which must be diverse and unbiased to avoid inaccurate results. We need to be able to explain AI patterns so they can be corrected if necessary, as well as to ensure fairness, privacy, and security. Another challenge for the deployment of AI models is data storage and, in Europe and similar global forms and initiatives, access due to the General Data Protection Regulation, GDPR.
Effective security measures are needed to ensure the safety and integrity of AI-based models. Additionally, implementing, maintaining, and scaling AI solutions is costly, and many companies are bold in truly transforming their business models into full technology. Developing the necessary technology and training employees to use the system is an investment companies must make.
Additionally, AI-based systems may lack the design to integrate with existing processes, potentially requiring significant customization before deployment. The financial sector is also rightly highly regulated and an ever-changing regulatory environment designed to protect consumers, which poses another challenge for AI. Therefore, all of us, regulators included, need to understand how deployed AI models work and their implications.
Thus, AI models must be proven trustworthy for use in the financial system. The better everyone understands AI models, the more we can trust in equitable deployment, privacy protection, and discrimination avoidance. Much more needs to be done to continue educating people and customers about the vast benefits of such complex technology. We need to ensure that people believe and understand that AI will benefit them when it reaches its full potential, and we need to remember that trust is always at the heart of the DNA of any business model, including the one banks.
Q: What advice do you give to the companies you finance on the future?
Margaris: I remind my companies that even well-known, technology-heavy companies can have offerings that seem dated compared to today’s innovations and technological advancements. The race never stops and each player can only become a memory if they rest on the laurels of their past initiatives.
Finally, explainable AI should be deployed to reduce costs and provide greater transparency and access. Everyone will benefit and above all will make real progress from the democratization of the financial sector, which should interest us all.